Privacy or Publicity - Who Drives the Wheel?

14 Pages Posted: 20 Oct 2003

Date Written: September 2003

Abstract

Financial markets are to a very large extent influenced by the advent of information. Such disclosures, however, do not only contain information about fundamentals underlying the markets, but they also serve as a focal point for the beliefs of market participants. This dual role of information gains further importance for explaining the development of asset valuations when taking into account that information may be perceived individually (private information), or may be commonly shared by all traders (public information). This study investigates into the recently developed theoretical structures explaining the operating mechanism of the two types of information and emphasizes the empirical testability and differentiation between the role of private and public information. Concluding from a survey of experimental studies and own econometric analyses, it is argued that most often public information dominates private information. This finding justifies central bankers' unease when disseminating news to the markets and argues against the recent trend of demanding full transparency both for financial institutions and financial markets themselves.

Keywords: Private information, public information, transparency, beliefs, coordination, financial crises

JEL Classification: F31, D84, D82

Suggested Citation

Bannier, Christina E., Privacy or Publicity - Who Drives the Wheel? (September 2003). Available at SSRN: https://ssrn.com/abstract=447500 or http://dx.doi.org/10.2139/ssrn.447500

Christina E. Bannier (Contact Author)

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gießen, 35394
Germany
+49 641 99 22551 (Phone)

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